Frequently being asked questions about changes in 1099-K reporting under the American Rescue Plan (ARP) motivated the IRS to update its Frequently Asked Questions website page to better explain the law’s effects to curious or confused Americans.
1099’s, says the IRS in its revised FAQ, are used to report goods or services payments received from:
- Credit, debit or stored value cards such as gift cards (payment cards)
- Payment apps or online marketplaces, also called third party settlement organizations or TPSOs.
Paypal, Ticketmaster, Etsy, and Venmo, are some of the better-known TPSOs. But there are a great many e-commerce and other marketplace sites affected by the law.
The ARP passed in 2021. One of the act’s controversial elements was to lower the reporting starting 1099-K starting point from $20,000, with more than 2,000 transactions, to $600: the fiscal equivalent of an airplane flying smoothly at 20,000 feet, and then crash-diving at a 90-degree angle to 600 feet.
The physical results of such a fall would be , and life-altering, and the financial and administrative outrage at the new 1099-K rule caused the IRS to amend the timetable. Further encouraging the IRS change was the analysis of having to process multi-millions of new forms. As many of the people or entities receiving these forms would be seeing them for the first time, there was breathtaking potential for calamitous confusion.
But that doesn’t mean the ARP goal isn’t still the ARP’s goal: it’s a matter of getting there more slowly. For tax year 2023, the reporting threshold remains unchanged: $20,000 or over 200 transactions are needed to initiate a 1099-K. However, next year, when reporting for tax year 2024, the reporting tripwire goes from $20,000 to $5,000. Though not on a par with the original $600 figure, going to $5,000 is nevertheless a massive change.
Will more people and TPSOs know about the changes wrought by the ARP? Yes. Will there still be confusion? Undoubtedly. Will taxpayers and companies burdened by the change continue to object? It’s hard to imagine they wouldn’t. Will that bring about yet another deadline alteration? That isn’t known.
The IRS’s revised FAQ on 1099-K reporting is subject to change, depending on who controls the White House, Congress, or both, after the 2024 election. But there’s of course no guarantee of major, or even minor, revision even if the Oval Office is occupied by a Republican instead of a Democrat.
For this reason, entities affected by the ARP 1099-K change should move forward on two tracks: one will be to comply for tax year 2024 with the law based on present IRS guidance; the other is to be ready, in the background, with the flexibility to go in another direction if there’s continued opposition, or political control changes hands. As has been made clear in the recent past, these legal provisions aren’t only not set in stone, the ink sometimes takes a long time to dry – and can be wiped away very quickly.
